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July 18, 2013

California Set to Cut Sellers Some Slack . . . Again

If you remember when software was
mainly sold on a disk inside a big box, you may also remember lawsuits
claiming that this violated state “slack fill” requirements -- as if software
were sold by volume. Those frivolous
suits were eliminated by a 1997 California law, but in recent years the issue
has resurfaced for sellers of cosmetics, food, and other consumer products.

In California, as in every other
state, nonfunctional “slack fill” is banned:
sellers are of course prohibited from misleading consumers into buying
more than they are. But there are some
good reasons for having empty space in a package -- for instance, contents may
settle in shipping, or a package for a very small item needs to be bigger in
order to deter shoplifting or even to allow the package to display required
information. And -- as with software --
empty space is not necessarily deceptive.
Deciding where to draw the line has not been an issue in most of the
country, and consumer
advocates are certainly policing practices they believe are
questionable. But, perhaps not
surprisingly, litigation has ensued in California.

Shop ‘Til You Drop

In the last few years, enterprising
multi-county posses of California District Attorneys have gone on shopping
sprees for items they believe violate the state’s anti-slack fill
requirements. Reports indicate there have
been more than a dozen significant investigations, with several so far leading
to public settlements. Such lawsuits
include a 2011
slack fill claim against Harry & David brought by Sacramento, Yolo, and
Fresno counties, and a 2008 lawsuit against the company that makes the drug
Mucinex, which netted Los Angeles, Sacramento, and Shasta counties nearly
$300,000. Additionally, Alameda,
Monterey, Napa, Santa Clara, and Sonoma counties netted a $200,000
settlement from Clorox for allegedly slack-filled detergent
containers. Prior to 2004, the penalties
from such settlements went to the state’s general fund, but with the passage of
Proposition 64, which reformed the state’s Unfair Competition Law, District
Attorneys are allowed to retain penalties.
They therefore have an incentive -- and a revolving funding source --
for aggressive enforcement.

Déjà vu All Over Again

During the
1990s, numerous businesses such as software, cosmetic, and toy companies faced
California lawsuits by consumer class action lawyers and district attorneys for
the use of nonfunctional slack fill in product packaging. Back then, before 2004’s Proposition 64, in
order to sue, a private plaintiff did not need to have even purchased the
product, much less claim he or she was legitimately mislead by the
packaging. (District Attorneys of course
do not need to represent someone who claims to have been harmed.)

To address the uncertainty and
expense of this litigation, in 1997 the California Legislature overwhelmingly
enacted AB
1394. This law was sponsored by
various manufacturer associations and was designed to curtail these harassing
and often spurious slack fill claims.
More information about the sorts of lawsuits prompting passage of AB
1394 is available here
and here. AB 1394 set out a long list of “safe harbors”
-- legitimate reasons for a package to contain empty space that does not
deceive consumers -- in order to give clear guidance to businesses and prevent
spurious lawsuits.

But apparently the monetary
incentives of Proposition 64 helped fuel the creative juices of District
Attorneys, who have now developed a new view of the AB 1394 safe harbors that
allows them to proceed with litigation over packaging that in some cases no
consumer has ever even complained about much less been deceived by. The Legislature is now set to quash the
District Attorneys’ imagination.

Senate Bill 465

On May 29, the California State
Senate unanimously reaffirmed its strong stance against fraudulent packaging
practices, while reinforcing its commitment to promoting commerce in the
state. SB 465
has passed one Assembly committee unanimously and appears to be on the fast
track to the Governor’s desk.

Sponsors
of SB 465, including the food and cosmetics industries, believe that litigious
District Attorneys are acting under the false rationale that packaging with
nonfunctional slack fill is per se illegal, whether or not the packaging falls
within one of the enumerated safe-harbors.
SB 465 clarifies that there is no such per se rule and reinforces the
scope of the safe-harbor exceptions.

SB 465 amends Sections
12606 and 12606.2 of the Business & Professions Code and Section
110375 of the Health & Safety Code relating to packaging and labeling. The bill is not intended to change the law
and therefore would cover pending investigations and suits. It clarifies that the mere existence of
nonfunctional slack fill is not sufficient to find a violation of the law. The bill refines the definition of
nonfunctional slack fill as “the empty space in a package that is filled to
substantially less than its capacity for reasons other than” those specified in
the law.

Current law defines fifteen
permissible uses of slack fill.
SB 465 makes only superficial changes to the language of these
safe-harbors. The fifteen safe-harbors
are, in short:

Protection of the contents*

Requirements of the machines*

Unavoidable product settling*

Space for mandatory labeling*

Container has value*

Inability to increase level of fill or reduce
size of package*

“Reasonable relationship”

Representation of actual size

Necessary space for mixing

Delivery device

Component kit

Tester or display units

Holiday and gift packages

Free sample or gift

Hardware and software

(The six safe-harbors marked with an asterisks are
exceptions that also apply to food containers under § 12606.2.)

Even if SB 465 is enacted, slack
fill allegations are likely to continue in California, albeit at a slower
pace. Although other state and federal
laws contain much more general prohibitions on slack fill, the California
standards are the most precise, and perhaps the most stringent, in the
nation. Sellers of consumer products
would be wise to review their packaging closely against the safe harbors set
out in California law lest they find themselves encircled by a posse of
California District Attorneys.